2 Rental Properties....
Hello all, I've been reading the forums here for some time now and most of the posters seems to know the business. This being my first actual post, please forgive any "newbie-ness". I have found 2 Income Properties for sale within approximately 30mins of my home. Both specifically state that owner financing is a possibillity with "good credit and a downpayment". Do I have a D/P? Certainly. Do I have good credit? Certainly not. So, my question is this: in spite of possible credit issues...is cash always king? Here is the break down as far as I can tell.
Property # 1
Tri-plex:
List Price: $97,500
Taxes: $4,300
Rent:
Apt # 1: $575
Apt # 2: $640
Apt # 3: $975
Total Rent Income: $2,190 monthly
At FULL price w/nothing down and an 8% interest rate for 30 years the total mortgage and taxes come to:
Mortgage: $715
Taxes: $358
Total: $1,073 Outgoing
Total: $2,190 Incoming
Difference: $1,116 In my pocket.
Am I missing something here? What other expenses should I provide for?
Property # 2
Tri-Plex:
List Price: $72,500
Taxes: $2,770
Rent:
Apt # 1: $500
Apt # 2: $650
Apt # 3: $700
Total rent income: $1,850 monthly
At FULL price w/nothing down and the same 8% interest rate for 30 years the mortgage and taxes come to:
Mortgage: $531
Taxes: $230
Total: $761 Outgoing
Total: $1,850 Incoming
Difference: $1,089 in my pocket.
That's a grand total of $2,205 income from these two properties. In my pocket. Am I doing this right? This seems pretty easy...what other expenses should I be accounting for? This will be my first foray into the Rental Property arena so I'm looking for substantial returns if I'm going to do it at all. Advice or thoughts welcome and appreciated. Thank you.
Looks like you've found yourself some great income properties, but there are a few other fees to be aware of.
Management fees: you can manage yourself, but why. I reccommend a good property management company... get referrals.
Vacancy factor: typically your units will have some vacancy every year and any good rental management company can tell you what the vacancy is in the market today for such units.
Water/Sewar/Garbage/Utilities etc.: know what bills you(landlord) will be paying and how much each month.
Insurance: did you include insurance in your calculations?
Maintenance: you WILL be running into maint. issues with these two properties, be aware of how old they are... the older the more maintenance.
Good luck and hope this helps...
Aaron H.
Coeur d'Alene, Idaho
[addsig]
Don't forget about mortgage insurance and in some cases hazard insurance. Are there any repairs needed?
Taxes - If the purchase price is higher than the value used in the tax assessments, your taxes could go up.
Also, if these properties are 30 minutes from your home, then you'll either need a property manager or will need to account for your time, as well as gas and wear on your car.
Quote:
On 2004-12-15 12:21, grneydgy wrote:
Looks like you've found yourself some great income properties, but there are a few other fees to be aware of.
Management fees: you can manage yourself, but why. I reccommend a good property management company... get referrals.
Vacancy factor: typically your units will have some vacancy every year and any good rental management company can tell you what the vacancy is in the market today for such units.
Water/Sewar/Garbage/Utilities etc.: know what bills you(landlord) will be paying and how much each month.
Insurance: did you include insurance in your calculations?
Maintenance: you WILL be running into maint. issues with these two properties, be aware of how old they are... the older the more maintenance.
Good luck and hope this helps...
Aaron H.
Coeur d'Alene, Idaho
Thanks for the info. This is exactly what I was talking about. Water/Garbage etc. I didn't think of that.
Insurance? Here comes my "newbieness" ... What insurance? Insurance didn't even cross my mind. What kind of figures should I be looking at there?
Maintenance. I had thought about that some, but not much. A property management company seems like a great idea, but what do they run on average...?
Looks pretty good returns to me after taking into account of your expenses. What city did you find these properties?
Thanks
Buy those deals now! They look like good numbers. PM's usually charge between 6 and 10%. Insurance is different all around the country so start calling around.
[addsig]
JMAAB - Who pays for Heat and Hot water? Tenants or You? If it is you, then you will have to take that into account also.
Re: "This seem's pretty easy..."
Maybe too good to be true? Something seems wrong here. First off, the rental income to List price ratio seems way out of whack with a CAP rate of well over 20%. Generally, some of the best deals you can find are in the 10-12% range and those are usually run-down properties in bad neighborhoods that require huge amounts of maintenance and the use of a baseball bat to collect rent. Turn it over to a management company and they will charge you dearly so there goes a lot of profit.
Another red flag is that taxes are running about 4.5% of the selling price. I don't know of any state with property taxes that high so the seller is selling the properties at a steep discount relative to what the appraisal district says it's worth. Why is the seller giving these properties away? Owner financing usually means the property would have difficulty being sold the traditional route... through a realty service. I would do some serious research here.
Other posters have detailed some of the extra costs you need to be aware of but there is nothing easy about owning 6 rental units 1/2 hour from your home. You likely will have to hire a management company. You may or may not be pleased with their service. If the properties are older (at that price I would assume they are), it's going to be a non-stop maintenance merry-go-round and that will be expensive in $$ if you don't do the work yourself. If you are a do-it-yourselfer, you will be making many trips to and fro. not to mention the extra trips because you forgot that little chain thingy that goes from the flush handle to the flapper.
Vacancy is very real and must be accounted for and you'll need to do more research to figure out an average rate for the class of property you are buying and the area of town it's in. Don't trust the owner's figures. Since you are new at this, leasing is probably best handled by a leasing agency/mgmt company. They usually want one month's rent and it's a valuable service because you won't have to advertise, screen, understand all the legal aspects of applications, leases etc. Also, you won't spend all your time waiting for no-shows (about 50% of the people who call you to set up appointments to look at the unit). The only downside to using an agency is that they don't market your property as agressivly as you can, nor are they in any hurry to fill your unit so count on about twice as much downtime vs. doing it yourself.
With six units, don't forget the cost's associated with make-ready... when a tennant moves out and you need to get the unit ready for re-habitation. This at a minimum consists of heavy cleaning, carpet shampooing and minor repairs. Half of the time it means new carpet and paint which can get pricey.
Also dont forget that with 6 units you probably have 12++ toilets, 18 faucets, 6 water heaters, 6 A/C heating units, 6 refridgerators, 6 stoves, 6 garbage disposals, 6 dishwashers etc. etc. etc. Get the picture? These things age, wear, break, leak. What does it cost to have a management company call a plumber to go out and jiggle the handle to stop a leaky toilet? Figure about $100 for anything minor.
This is not meant to scare you from becoming a landlord but most newbies totally underestimate all the costs (time, money, emotional, physical) associated with such an endeavour. But the deal you have come across seems too good to be true (on paper) so I would bet there are serious issues hidden in the deal.
Be careful.
Quote:
On 2004-12-15 13:43, spinwilly wrote:
Another red flag is that taxes are running about 4.5% of the selling price. I don't know of any state with property taxes that high so the seller is selling the properties at a steep discount relative to what the appraisal district says it's worth.
4.5% is high? Wow, here is Michigan I deal with 7%. The cheapest I know of is 4%.
In my area property taxe rates range from about 3.5% to 4.5% of assessed value...
Where are these properties? And is there any rehab necessary? They both sound like great deals... I think I want to start investing there!!
Good Luck!
[addsig]
Outside of what everyone has named, such as repairs and hidden "bugs", here's another thought... have you looked at the existing leases? Are they month-to-month? Does the rent you're being told include a month-to-month fee? So if you rent to a long-term client, will you get less? What about the area rents? Are these higher/lower/ballpark? And most importantly... WHO'S PAYING ELECTRIC/GAS/WATER?! That would blow your profits right out of the roof. General rule of thumb on a property not in too much need of repair is this: $1 of rent buys you $100 of a house to break even. So $600 in rent should break you even on a $60k house (give or take, when you factor the interest rates and prop. taxes) You, on the other hand have in excess of DOUBLE the break-even point. Great deal if you're not missing anything. Another thing is - a property I almost bought recently is now scheduled to be removed because the city is widening the highway. Make sure your deal is not being "dumped" on you.
Truth be told, I have yet to see the properties first hand so I may be counting chickens if you know what I mean. All information has been provided by super secret sources from behind enemy lines, however, sale records from 1997 indicate a price of $85,000 on one property, so list of $97k does not seem out of whack too me. Have yet to check on the other but I assume I will probably find more of the same. I need to hear all the "bad stuff" about Rental Properties along with all the fees, headaches, costs, etc before I go jumping in on impulse. As I'm sure many of you are aware, impulse buying kills. I can't afford to go for it and end up with buyers remorse 3 months later because I missed something. I very much appreciate all the feedback by the way. Very informative.
I'm sure you understand. As for the taxes, that is pretty much the norm around here. I've always thought they were high, being from Montana originally.
As for the location of these little numbers...though it shames me to admit...I'm afraid I will be unable to divulge the whereabouts of them. Less competition the better and all.
Anyway, I'm not married to these two properties yet. There are others in the general area of my home that are possibilities...but there two together are seemingly the most profitable two so far.
Hi,
The one "biggie' issue you all missed here is LAWYERS FEES, in this perfect world we still have tenants that don't pay therefore you'll need to evict them.
Again, not to scare you, but you asked
Good Luck!
I've evicted a dozen people or so and never spent a dime on lawyer fees. Every one of these were tenants I bought into, not placed myself.
[addsig]
Re: "4.5% is high? Wow, here is Michigan I deal with 7%. The cheapest I know of is 4%."
Well I guess you learn something everyday. 7% property tax on top of a state income tax? I'd move.
California property tax is 1.1%. Here in Texas it averages about 2.5% and we pay no state income tax.
Re: "4.5% is high? Wow, here is Michigan I deal with 7%. The cheapest I know of is 4%."
Well I guess you learn something everyday. 7% property tax on top of a state income tax? I'd move.
California property tax is 1.1%. Here in Texas it averages about 2.5% and we pay no state income tax.